One year can make a lot of difference in the logistics industry. Last year, Robert Delaney, vice president of Cass Information Systems, Inc., a company that provides payment and information services for the logistics industry, commented that logistics spending in '98 hovered at 10.6% of the Gross Domestic Product (GDP). He considered this figure "disappointing". This year, he reported that logistics costs in '99 were down to 9.9%. Contributing to this decrease is the U.S. Department of Commerce's recalculation of national income and product account numbers, (in the light of which, spending in '98 has been recalculated as 10.1% of GDP). Another key factor is the increasingly larger role e-commerce is playing in inventory and supply chain management. According to the government's recalculations, logistics costs, as a percent of the GDP, have steadily decreased from 15.7% in 1980 to the current 9.9%.

In his annual report, Delaney breaks overall logistics expenditures into three components: inventory carrying costs, transportation and administration. Delaney calculated carrying costs, which includes interest charges, warehousing, obsolescence, deterioration and labor costs, as well as insurance and taxes, to be $332 billion. As for transportation costs, Delaney determined that U.S. businesses spent $554 billion on freight carrying services in 1999 and spent another $99 billion on other modes of transportation such as railroads, ocean shipping and air freight services. The third component, administrative costs, were estimated to be $35 billion.

Intrinsic to Delaney's vision of keeping logistics costs down is the practice of sound inventory management. Delaney points to this as a key factor in '99's success. He reported that the inventory-to-sales ratio declined from 1.38 months supply in January 1999 to 1.32 months by 1999's end. This is a drop that occurred despite the Y2K scare, which some industry experts predicted would cause businesses to overstock inventories. Delaney attributed these optimistic numbers to the leverage the Internet offers inventory management. He states in his annual report: "It appears that the inherent power of the Internet and the trends in business-to-business e-commerce are improving the visibility of inventory in motion." Delaney goes on to say that, with continued improvements in e-commerce, businesses can keep logistics costs down and even "maintain U.S. business costs at the goal we set in 1990 - namely 10% of the nominal GDP or lower."

Source: Logistics Ropes in Inventory
James Aaron Cooke
Logistics Online, July 1, 2000
http://www.manufacturing.net/magazine/logistic